Archimedes, aid/watch, constitutional levers and where we now stand

Significant reform of the laws regulating charities is under way in Australia. The reforms cover almost every facet of the relationship between charities and government and the process has brought to the surface different assumptions about the role of charities in society, their entitlement to fiscal and other privileges and the scope and nature of regulation that can or should be imposed on the charities. This paper explores these broader issues in the context of the Aid/Watch case, involving an organisation used by citizens to challenge the State. Such organisations occupy contested space as to what does and does not constitute a charity. Accordingly the case provides a useful perspective from which to consider the broader issues in the relationship between government and charity. This paper seeks to build on the contribution made by other academics, by exploring the constitutional significance of political purposes and drawing from philosophy to provide context and meaning to potentially significant aspects of the judgment that might be missed when it is analysed only in terms of legal precedent through the narrow lens of the existing four heads of charity. Revenue implications for taxation of charities and political parties are also considered and it is suggested that in practice, if not in theory, the fence between them has come down.

Cross-border insolvency

Panellist commentary on delivered conference papers on the topic of Cross-border Insolvency.

The Australian nonprofit sector legal and accounting almanac 2012

This is the fifth year that The Australian Centre for Philanthropy and Nonprofit Studies has published an Almanac summarising annual developments in the law relevant to Australia's nonprofit sector. The Almanac provides comprehensive summaries of legal cases in Australia and overseas, and changes to relevant legislation in all Australian jurisdictions, during 2012. It also includes articles outlining developments in taxation and charity law, and the regulation of nonprofit organisations. This edition naturally includes extensive discussion of the new national regulator, the Australian Charities and Not-for-profits Commission (ACNC), and the legal arrangements surrounding its establishment. There are also articles on matters of interest arising in New Zealand, the UK, and Canada.

Tax and equality in 1972: The case of Lodge v FCT

This paper is part of a larger project described at http://www.law.uq.edu.au/australian-feminist-judgments-project as follows: This project draws its inspiration from two significant recent developments in law and feminist scholarship. The first has been the emergence in Canada and the UK of feminist judgment-writing projects, in which feminist academics, lawyers and activists have written alternative judgments in a series of legal cases, imagining the different decision that might have been made by a feminist judge hearing the case. The second has been the incremental shift in recent years in the number of women judges and Magistrates presiding in courts and tribunals throughout Australia. As part of this project, a group of scholars will write alternative feminist judgments. This paper is one of the alternative feminist judgements. The case used for this discussion is Lodge v Federal Commissioner of Tax [1972] HCA 49. In that case, a woman, earning income by way of commission in her occupation as a law costs clerk, which she carried out at her home, claimed to deduct from her assessable income child care fees that enabled her to devote time and attention to her work. The High Court held that no right to a deduction had arisen. It found that, although the purpose of the expenditure was for gaining assessable income, it did not take place in, or in the course of, preparing bills of cost. Further, the expenditure was of a ‘private or domestic’ nature. This seminal taxation decision, which prevents deductions for childcare, has broad financial ramifications for workers in the home and those with childcare responsibilities. It designates childcare duties as ‘private’, notwithstanding the need for these in order, particularly for women, to work in the public sphere.

Australian Tax Analysis : Cases, Commentary, Commercial Applications and Questions [9th Ed.]

Now in its ninth edition, Australian Tax Analysis: Cases, Commentary, Commercial Applications and Questions has a proven track record as a high-level work for students of taxation law written by a team of authors with many years experience. Taking into account the fact that the volume of material needed to be processed by today’s taxation student can be overwhelming, the well-chosen extracts and thought-provoking commentary in Australian Tax Analysis, 9th edition, provide readers with the depth of knowledge, and reasoning and analytical skills which will be required of them as practitioners. In addition to the carefully selected case extracts and the helpful commentary, each chapter is supplemented by engaging practice questions involving problem solving, commercial decision-making, legal analysis and quantitative application. All these elements combined make Australian Tax Analysis an invaluable aid to the understanding of a subject which can be both technical and complex.

Symone Anstis : the tax advocate for higher education students

Many who have taken a tax course in the last few years will be aware of the plight of Ms Symone Anstis. Her story is a simple one. The year is 2006 and Ms Anstis, an undergraduate student is undertaking a teaching degree at the Australian Catholic University. To support herself she works at Katies earning $14,946, and receives Youth Allowance of $3,622. In her tax return for that year Ms Anstis claims $920 for ‘self-education expenses’ comprising travel, supplies, student administration fees, depreciation on her computer, textbooks and stationery. These expenses totalling $1,170 are correctly reduced by the non-deductible first $250, per s 82A of the Income Tax Assessment Act (1997) (Cth) (ITAA97). Ms Anstis claims a deduction for ‘self-education expenses’ on the basis that a condition of receiving Youth Allowance is the enrolment and satisfactory progress in an acceptable course of study. Generally, a deduction is allowed where a loss or outgoing is incurred in gaining or producing assessable income and that loss or outgoing is not of a private or domestic nature. Ms Anstis claims the expenses are incurred to meet the requirements of maintaining Youth Allowance so the nexus is satisfied. On assessment, the Commissioner of Taxation disallows the deduction claimed on the basis that ‘self-education expenses’ are only deductible if they have a relevant connection to the taxpayer’s current income-earning activities or they are likely to lead to an increase in a taxpayer’s income from his or her current income-earning activities in the future.

Double tax agreements and the international allocation of business income in Australia

Increasingly, the effectiveness of the present system of taxation of international businesses is being questioned. The problem associated with the taxation of such businesses is twofold. A system of international taxation must be a fair and equitable system, distributing profits between the relevant jurisdictions and, in doing so, avoiding double taxation. At the same time, the prevention of fiscal evasion must be secured. In an attempt to achieve a fair and equitable system Australia adopts unilateral, bilateral and multilateral measures to avoid double taxation and restrict the avoidance of tax. The first step in ascertaining the international allocation of business income is to consider the taxation of business income according to domestic law, that is, the unilateral measures. The treatment of international business income under the Australian domestic law, that is, the Income Tax Assessment Act 1936 (Cth) and Income Tax Assessment Act 1997 (Cth), will depend on two concepts, first, whether the taxpayer is a resident of Australia and secondly, whether the income is sourced in Australia. After the taxation of business profits has been determined according to domestic law it is necessary to consider the applicability of the bilateral measures, that is, the Double Tax Agreements (DTAs) to which Australia is a party, as the DTAs will override the domestic law where there is any conflict. Australia is a party to 40 DTAs with another seven presently being negotiated. The preamble to Australia's DTAs provides that the purpose of such agreements is 'to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income'. Both purposes, for different reasons, are equally important. It has been said that: The taxpayer hopes the treaty will prevent the double taxation of his income; the tax gatherer hopes the treaty will prevent fiscal evasion; and the politician just hopes. The first purpose, the avoidance of double taxation, is achieved through the provision of rules whereby the Contracting States agree to the classification of income and the allocation of that income to a particular State. In this sense DTAs do not allocate jurisdiction to tax but rather provide an arrangement whereby the States agree to restrict their substantive law. The restriction is either through the non-taxing of the income or via the provision of a tax credit.

Arm’s length pricing and multinational banks : an old fashioned approach in a modern world

In “Arm’s Length Pricing and Multinational Banks: An Old Fashioned Approach in a Modern World”, Kerrie Sadiq, describes the high level of integration of multinational financial institutions and argues that treating each element within a given operation as a separate entity for transfer pricing purposes is not economically or legally realistic. She proposes instead formulary apportionment as a device for managing this complexity.

A nation’s role in addressing base erosion and profit shifting : balancing sovereignty with international collaboration and coordination

The notion of sovereignty is central to any international tax issue. While a nation is free to design its tax laws as it sees fit and raise revenue in accordance with the needs of its citizens, it is not possible to undertake such a task in isolation. In a world of cross-border investments and business transactions, all tax regimes impact on one another. Tax interactions between sovereign states cannot be avoided. Ultimately, the interactions mean that a nation must decide whether to engage in both collaboration and coordination with other nations and supranational bodies alike or maintain an individualised stance in relation to its tax policy. Whatever the decision, there is arguably an exercise in national sovereignty in some form. In the context of an international tax regime, whether that regime is interpreted broadly as meaning international norms generally adopted by nations around the world or domestic regimes legislating for cross-border transactions, rhetoric around national fiscal sovereignty takes on many different forms. At one end of the spectrum it is relied upon by financial secrecy jurisdictions (tax havens) as a defence to their position on the basis that ‘other’ nations cannot interfere with the fiscal sovereignty of a jurisdiction. At the other end of the spectrum, it is argued that profit shifting and international tax avoidance if not stopped is, in and of itself, a threat to a nation’s fiscal sovereignty on the basis that it threatens the ability to tax and raise the revenue needed. This paper considers a modern conceptualisation of sovereignty along with its role within international tax coordination and collaboration to argue that a move towards a more unified approach to addressing international base erosion and profit shifting may be the ultimate exercise of national fiscal sovereignty. By using the current transfer pricing regime as a case study, this paper posits that it is not merely enough to have international agreement on allocation rules to be applied, but that the ultimate exercise of national sovereignty is political agreement with other states to ensure that it is governments which determine the allocational basis of worldwide profits to be taxed. In doing so, it is demonstrated that the arm’s length pricing requirement of the current transfer pricing regime, rather than providing governments with the ability to determine the location of profits, is providing multinational entities with the ultimate power to determine that location. If left unchecked, this will eventually erode a nation’s ability to capture the required tax revenue and, as a consequence, may be deemed a failure by nation states to exercise their fiscal sovereignty.

Transfer pricing and multinational financial institutions : the case for replacing arm’s length price with a unitary approach

The international tax system, designed a century ago, has not kept pace with the modern multinational entity rendering it ineffective in taxing many modern businesses according to economic activity. One of those modern multinational entities is the multinational financial institution (MNFI). The recent global financial crisis provides a particularly relevant and significant example of the failure of the current system on a global scale. The modern MNFI is increasingly undertaking more globalised and complex trading operations. A primary reason for the globalisation of financial institutions is that they typically ‘follow-the-customer’ into jurisdictions where international capital and international investors are required. The International Monetary Fund (IMF) recently reported that from 1995-2009, foreign bank presence in developing countries grew by 122 per cent. The same study indicates that foreign banks have a 20 per cent market share in OECD countries and 50 per cent in emerging markets and developing countries. Hence, most significant is that fact that MNFIs are increasingly undertaking an intermediary role in developing economies where they are financing core business activities such as mining and tourism. IMF analysis also suggests that in the future, foreign bank expansion will be greatest in emerging economies. The difficulties for developing countries in applying current international tax rules, especially the current traditional transfer pricing regime, are particularly acute in relation to MNFIs, which are the biggest users of tax havens and offshore finance. This paper investigates whether a unitary taxation approach which reflects economic reality would more easily and effectively ensure that the profits of MNFIs are taxed in the jurisdictions which give rise to those profits. It has previously been argued that the uniqueness of MNFIs results in a failure of the current system to accurately allocate profits and that unitary tax as an alternative could provide a sounder allocation model for international tax purposes. This paper goes a step further, and examines the practicalities of the implementation of unitary taxation for MNFIs in terms of the key components of such a regime, along with their their implications. This paper adopts a two-step approach in considering the implications of unitary taxation as a means of improved corporate tax coordination which requires international acceptance and agreement. First, the definitional issues of the unitary MNFI are examined and second, an appropriate allocation formula for this sector is investigated. To achieve this, the paper asks first, how the financial sector should be defined for the purposes of unitary taxation and what should constitute a unitary business for that sector and second, what is the ‘best practice’ model of an allocation formula for the purposes of the apportionment of the profits of the unitary business of a financial institution.

A nation's role in addressing base erosion and profit shifting : sovereignty in relation to transfer pricing

The notion of sovereignty is central to any international tax issue. While a nation is free to design its tax laws as it sees fit and raise revenue in accordance with the needs of its citizens, it is not possible to undertake such a task in isolation. Tax interactions between sovereign states cannot be avoided. Ultimately, the interactions mean that a nation must decide whether or engage in both collaboration and co ordination with other nations and supranational bodies alike or maintain a unilateral stance in relation to its tax policy. This article considers a modern conceptualisation of sovereignty to argue that a move towards a more unified approach to addressing international base erosion and profit sharing may be the ultimate exercise of national fiscal sovereignty.